While the COVID-19 pandemic seems to have the nation’s full attention, it’s not the only public health emergency taking American lives at an alarming rate. Amid the coronavirus, drug abuse — a deadly years-long problem for the country — is also on the rise.
Isolation, job loss, and financial strain drive a growing number of people to use drugs with the CDC estimating a record-setting 75,500 drug-related deaths in 2020 if current trends continue.
As a result, addiction treatment centers are seeing heightened demand, in some cases reporting as much as a 50% growth in services. While the spike is somber, it’s creating M&A opportunities for those on both sides of the deal.
Seller opportunities
For owners of substance use disorder (SUD) treatment companies, now may be a good time to sell their business. That’s especially true for those who see expansion opportunities but do not have the financial resources to do so, for smaller providers having trouble navigating COVID-19, as well as anyone looking to receive top dollar for their company.
Given the heightened demand in the already hot addiction marketplace, private investors and strategic buyers are especially bullish on SUD purchases as of late. They have their eyes on deals that allow them to expand their service offerings and enter new markets.
Additionally, some buyers are allowing for certain COVID-19 adjustments, according to Kevin Taggart, managing partner of Mertz Taggart, meaning they’re looking at not only whether providers were growing their businesses pre-pandemic, but also how they have responded since the pandemic began. While the adjustment can’t bring back missing revenue for that period, the adjustment would “normalize” the company’s value as if Covid had never happened. The one caveat is that the company needs to show that it is back to pre-pandemic levels.
Buyer opportunities
Opportunity in the SUD space is also ripe for prospective buyers with capital to spend, especially when compared to other sectors of the economy.
That holds true even beyond the COVID-19 pandemic, with the future of the addiction treatment industry poised for growth, because the need for services is increasing and the industry has shown to be more resilient in difficult economic times.
While the Northeast and California have seen the most noteworthy ribbon cuttings of late, smaller markets are responding to local needs, as well. Mertz Taggart is also predicting that Q4 of 2020 will see the largest number of M&A transactions since Q4 of 2018, with momentum increasing for 2021.
All of this is a positive sign for the long-term viability of the SUD treatment industry, with an estimated market spend of $42 billion per year.
“Companies that provide excellent clinical care, keep their charts in order, and can maintain a high census with consistent referral sources will be in demand in 2021,” Taggart says. Kevin Taggart, Managing Partner, Mertz Taggart
The bottom line is this: Whether you’re a buyer or a seller, it’s a great time to be in the SUD market. With 11 transactions in both the second and third quarters of 2020, it’s likely the industry will also see those numbers accelerate in the quarters to come.
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